18 January 2024
RED Alert - January 2024 – 2 of 4 Insights
Welcome to the first edition of RED Alert of 2024
Also featuring in this month's update:
Leasehold and Freehold Reform Bill
In November 2023 the Government introduced the long-awaited Leasehold and Freehold Reform Bill (the Bill) to Parliament, signalling a significant change to the system of residential property ownership in the UK. The Bill, which has now passed through its first two readings in the House of Commons with overwhelming support from MPs, seeks to amend the Leasehold Reform Act 1967 (the 1967 Act) and the Leasehold Reform, Housing and Urban Development Act 1993 (the 1993 Act), to extend tenant rights.
The Bill introduces wide ranging reforms to both the 1967 and 1993 Act which the Government claims will promote "fairness and transparency" for leaseholders. These reforms predominantly relate to the following 4 key areas:
Perhaps the most substantial legislative changes made under the Bill relate to the process for lease extension and enfranchisement which are currently regulated by the 1993 Act and 1967 Act respectively.
The Bill introduces the following key changes in this area:
The Bill also makes some significant procedural changes which are designed to facilitate claims for tenants. In particular:
The new legislation proposes a number of similar reforms with respect to the formation of Right to Manage companies. These include increasing the limit on the number of commercial leaseholders permitted before an RTM company can be formed in respect of mixed use developments from 25% to 50% and relaxing the requirement for an RTM company to pay the landlord's fees incurred in connection with the right to manage process except where the Court or Tribunal has the power to award costs in proceedings.
The Bill's reforms also extend to both service charge and ground rent, providing tenants with new statutory rights to:
The way in which landlords can demand service charges is also set to change, with the Bill introducing a new requirement for service charge demands and a written statement of account to be in a standardised format, otherwise funds will not be due. This, in addition to the extension of the statutory regulation of service charges under the Landlord and Tenant Act 1985 to both fixed and variable service charges, is intended to provide tenants with a greater degree of protection against unreasonable charges.
The Bill will also ban insurance commissions for freeholders and managing agents with the effect that the only charge which can be passed onto leaseholders is the insurance premium itself. Administration and legal charges are also targeted as the Bill introduces a new duty on landlords to publish an administration charge schedule in a bid to improve transparency and limits the rights of landlords to claim litigation costs from tenants.
Broadly speaking, the final area of reform in the Bill relates to estate management charges. Once the Bill comes into force, landlords will face limits on the extent to which they can recover these charges and any unreasonable charges will not be recoverable. The Bill also contains a new consultation requirement which will apply where the cost of the works exceeds an "appropriate amount" set by secondary legislation.
In recognition of the fact that some homeowners who are required to pay estate management charges will own the freehold interest in their homes, these changes will apply to leaseholders and freeholders alike.
There can be no doubt that this new radical legislation will shake up the existing leasehold system and create a more favourable environment for long leaseholder tenants. Despite the numerous reforms outlined above, one change was notably absent – in its current form, the Bill does not include any provisions relating to the banning of leasehold new build houses which was much anticipated. Statements made by the Government following the introduction of the Bill appear to indicate, however, that we should still expect this reform to be introduced into the Bill by way of amendment as it passes through Parliament.
Whilst many leaseholders will welcome the changes, Landlords with large residential portfolios will be particularly mindful of the proposed reforms and the possible impact on their revenue streams. If you are a landlord or tenant and require advice on how the Bill will impact your circumstances, do not hesitate to get in touch with a member of our team.
18 January 2024
18 January 2024
18 January 2024
by Emma Archer